MANAGEMENT ANNUAL REPORT FISCAL YEAR 2017

MANAGEMENT ANNUAL REPORT FISCAL YEAR 2017 ANNUAL REPORT FISCAL YEAR 2017

MEMBERS OF THE UNIVERSITY OF TEXAS BOARD OF REGENTS AND EXECUTIVE OFFICERS As of August 31, 2017 OFFICERS Paul L. Foster, Chairman R. Stephen Hicks, Vice Chairman Jeffery D. Hildebrand, Vice Chairman Francie A. Frederick, General Counsel to the Board of Regents MEMBERS Terms scheduled to expire February 1, 2019 * Jeffery D. Hildebrand Paul L. Foster Ernest Aliseda Terms scheduled to expire February 1, 2021 * Sara Martinez Tucker R. Steven Hicks David J. Beck Terms scheduled to expire February 1, 2023 * James C. Rad Weaver Kevin P. Eltife Janiece Longoria Terms scheduled to expire May 31, 2018 * Jaciel Castro (Student Regent) EXECUTIVE OFFICERS William H. McRaven, Chancellor David E. Daniel, Ph.D., Deputy Chancellor and Chief Operating Officer Steven W. Leslie, Ph.D., Executive Vice Chancellor for Academic Affairs Scott C. Kelley, Ed.D., Executive Vice Chancellor for Business Affairs Raymond S. Greenberg, M.D., Ph.D., Executive Vice Chancellor for Health Affairs Amy Shaw Thomas, J.D., Vice Chancellor for Academic and Health Affairs Daniel H. Sharphorn, J.D., Vice Chancellor and General Counsel Barry McBee, J.D., Vice Chancellor and Chief Governmental Relations Officer William H. Shute, J.D., Vice Chancellor for Federal Relations Randa S. Safady, Ph.D., Vice Chancellor for External Relations Stephanie A. Bond Huie, Ph.D., Vice Chancellor for Strategic Initiatives * Each Regent s term expires when a successor has been appointed, qualified, and taken oath of office. The Student Regent serves a one-year term.

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DIRECTORS AND OFFICERS EMPLOYMENT PRACTICES LIABILITY/CYBER DESCRIPTION OF COVERAGE DATE OF INCEPTION PREMIUM ALLOCATION METHODOLOGY Directors and Officers/Employment Practices Liability (D&O/EPL) is a selfinsurance plan that provides coverage to board members, employees, faculty, and other covered individuals, as well as each of the UT System institutions for claims arising from actual or alleged wrongful acts performed by the Plan beneficiaries. The Plan also provides coverage for EPL claims, such as wrongful termination, failure to promote, and wrongful discipline. The Office of General Counsel administers the D&O/EPL Plan and ORM is responsible for Plan accounting. The Cyber Liability Program provides the UT System with financial and third party incident response resources to mitigate a technology security and privacy liability event. September 1, 1991 Coverage A & B September 1, 1996 Coverage C September 15, 2015 Cyber Liability D&O/EPL: 80% - Employee Headcount (6 years); 20% - Loss History (6 years); capped at $250,000 per claim Cyber: 80% - Operating Budget; 20% - Employee Headcount Directors and Officers/Employment Practices Liability/Cyber Statement of Net Position As of 8/31/2017 8/31/2016 Assets Operating Cash $ 12,248,938.78 $ 12,050,681.31 Prepaid Expenses 65,847.20 65,832.56 Total Assets 12,314,785.98 12,116,513.87 Liabilities IBNR $ 2,303,317.00 $ 2,532,761.00 Total Liabilities 2,303,317.00 2,532,761.00 Net Position $ 10,011,468.98 $ 9,583,752.87 Statement of Revenues, Expenses and Changes in Net Position For the Year Ended 8/31/2017 8/31/2016 Revenue Premium Income $ 1,732,724.00 $ 1,761,224.00 Interest Income 251,731.42 234,946.98 Total Revenue 1,984,455.42 1,996,170.98 Expenses Claim Expenses $ - $ - Excess Insurance Policy Expense 1,606,657.11 1,552,678.20 Actuary Expenses 4,743.75 5,692.50 Administrative Expenses 1 174,782.45 188,394.00 Total Expenses 1,786,183.31 1,746,764.70 Change in IBNR (229,444.00) 1,447,276.00 Net Expenses 1,556,739.31 3,194,040.70 Excess Revenue Over Expenses 427,716.11 (1,197,869.72) Other Transfers and Adjustments - - Change in Net Position 427,716.11 (1,197,869.72) Beginning Net Position 9,583,752.87 10,781,622.59 Ending Net Position $ 10,011,468.98 $ 9,583,752.87 1 Lapse FY16 budget: OGC $2,350.51 + ORM $9,879.04 11

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CONSTRUCTION RISK PROGRAMS DESCRIPTION OF COVERAGE The Rolling Owner Controlled Insurance Program (ROCIP) provides Workers Compensation, General Liability, and Excess Liability insurance coverage for all enrolled contractors working on designated UT System construction projects. Benefits include lower insurance premiums due to bulk purchasing and consistency of insurance provided on each project. The Master Builder s Risk Program provides property insurance coverage for large construction and renovation projects, including coverage for the work that is being completed as part of the project, equipment, damage to existing property, delay in completion, and soft costs. TOTAL VALUE ROCIP - $11 billion and Builder s Risk $3.2 billion as of August 31, 2017 PREMIUM ALLOCATION METHODOLOGY ROCIP - Actuarially determined rate per $100 construction value Builder s Risk Rates determined by insurance carriers based on project specifications Construction Programs Statement of Net Position As of 8/31/2017 8/31/2016 Assets Operating Cash $ 75,644,898.47 $ 64,029,991.60 Prepaid Expenses 3,649,747.67 4,244,834.36 Total Assets 79,294,646.14 68,274,825.96 Liabilities Accounts Payable $ 432,276.08 $ 161,025.45 IBNR 4,301,519.00 4,535,346.00 Total Liabilities 4,733,795.08 4,696,371.45 Net Position $ 74,560,851.06 $ 63,578,454.51 Statement of Revenues, Expenses and Changes in Net Position For the Year Ended 8/31/2017 8/31/2016 Revenue Premium Income $ 16,197,057.70 $ 16,472,556.54 Builder s Risk Income 2,044,656.28 2,486,733.61 Interest Income 1,544,804.70 1,204,032.76 Total Revenue 19,786,518.68 20,163,322.91 Expenses ROCIP Claim Expenses $ 2,202,647.21 $ 2,416,942.55 Builder s Risk Expenses 1,590,948.62 1,496,944.35 ROCIP Premium Expenses 4,580,266.38 4,894,528.16 Actuary Expenses 6,210.00 4,226.25 Administrative Expenses 1 657,876.92 718,059.00 Total Expenses 9,037,949.13 9,530,700.31 Change in IBNR (233,827.00) (910,848.00) Net Expenses 8,804,122.13 8,619,852.31 Excess Revenue Over Expenses 10,982,396.55 11,543,470.60 Other Transfers and Adjustments - 675.03 Change in Net Position 10,982,396.55 11,544,145.63 Beginning Net Position 63,578,454.51 52,034,308.88 Ending Net Position $ 74,560,851.06 $ 63,578,454.51 1 FY17 includes $49,395.08 Lapse FY16 budget transferred back. 15

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UNEMPLOYMENT COMPENSATION INSURANCE DESCRIPTION OF COVERAGE Unemployment Compensation Insurance (UCI) is a self-insurance plan that assists workers who become unemployed through no fault of their own. It provides temporary financial assistance to qualified individuals while they search for other work. DATE OF INCEPTION 1971 PREMIUM ALLOCATION 60% - Loss History (3 years) METHODOLOGY 20% - Claim Frequency (3 years) 20% - FTEs Unemployment Compensation Insurance Statement of Net Position As of 8/31/2017 8/31/2016 Assets Operating Cash $ 12,948,638.10 $ 12,461,473.53 Accounts Receivable 96,404.46 135,137.90 Prepaid Expenses 4,618.21 4,483.70 Total Assets 13,049,660.77 12,601,095.13 Liabilities Accrued Expenses $ - $ - Claims Accrued 1,167,973.79 1,199,576.17 Total Liabilities 1,167,973.79 1,199,576.17 Net Position $ 11,881,686.98 $ 11,401,518.96 Statement of Revenues, Expenses and Changes in Net Position For the Year Ended 8/31/2017 8/31/2016 Revenue Premium Income $ 5,386,079.21 $ 6,498,013.21 Interest Income 305,054.57 266,504.13 Total Revenue 5,691,133.78 6,764,517.34 Expenses Claim Expenses $ 4,671,895.16 $ 4,798,304.68 Claim Management Expenses 194,433.29 234,044.63 Actuary Expenses 3,638.75 3,708.75 Administrative Expenses 1 333,867.50 359,029.00 Total Expenses 5,203,834.70 5,395,087.06 Changes in Prior Year Accrual (31,602.38) (72,169.63) Net Expenses 5,172,232.32 5,322,917.43 Excess Revenue Over Expenses 518,901.46 1,441,599.91 Other Transfers and Adjustments (38,733.44) (55,922.68) Change in Net Position $480,168.02 1,385,677.23 Beginning Net Position 11,401,518.96 10,015,841.73 Ending Net Position $ 11,881,686.98 $ 11,401,518.96 1 FY17 includes $24,697.50 Lapse FY16 budget transferred back. Additional $4,929 SWC staffing added in May 2017 17

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WORKERS COMPENSATION INSURANCE DESCRIPTION OF COVERAGE Workers Compensation Insurance (WCI) is a self-administered/selfinsurance plan that provides reasonable and necessary medical coverage and income benefit payments to UT System employees who sustain injuries or occupational diseases while in the course and scope of employment. An all-states policy is purchased for employees who work outside the state of Texas. Commercial WCI coverage is provided for employees who work under federal contracts and in foreign countries. DATE OF INCEPTION September 1, 1952 PREMIUM ALLOCATION 50% - Loss History (3 years); capped at $100,000 per claim METHODOLOGY 30% - Payroll (3 years) 20% - Claim Frequency (3 years) Workers Compensation Insurance Statement of Net Position As of 8/31/2017 8/31/2016 Assets Operating Cash $ 28,822,296.08 $ 27,965,691.86 Accounts Receivable 300,000.00 701,464.93 Prepaid Expenses 745,377.43 341,163.44 Total Assets 29,867,673.51 29,008,320.23 Liabilities Accrued Expenses $ 153,129.15 $ 65,255.72 IBNR 7,572,000.00 7,591,000.00 Total Liabilities 7,725,129.15 7,656,255.72 Net Position $ $22,142,544.36 $ 21,352,064.51 Statement of Revenues, Expenses and Changes in Net Position For the Year Ended 8/31/2017 8/31/2016 Revenue Premium Income $ 8,945,726.69 $ $8,291,397.87 Interest Income 622,030.97 573,314.44 Total Revenue 9,567,757.66 8,864,712.31 Less RAP Funds Transfer (2,000,000.00) (2,998,447.00) Net Revenue 7,567,757.66 5,866,265.31 Expenses Claim Expenses $ 4,223,633.80 $ 3,188,566.84 Claim Management Expenses 1,194,311.83 1,115,277.12 Out of State Insurance 41,162.08 65,719.50 Actuary Expenses 11,065.00 16,043.75 Administrative Expenses 1 1,055,741.60 1,138,242.00 Total Expenses 6,525,914.31 5,523,849.21 Change in IBNR (19,000.00) (120,000.00) Net Expenses 6,506,914.31 5,403,849.21 Excess Revenue Over Expenses 1,060,843.35 462,416.10 Other Transfers and Adjustments (270,363.50) (832,748.13) Change in Net Position 790,479.85 (370,332.03) Beginning Net Position 21,352,064.51 21,722,396.54 Ending Net Position $ 22,142,544.36 $ 21,352,064.51 1 Lapse FY16 budget: OGC $3,209.82 + ORM $74,092.58. Additional $9,858 SWC staffing added in May 2017. 19

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EXAMPLES OF SYSTEMWIDE INITIATIVES EXAMPLES OF INSTITUTION INITIATIVES Post - Offer Employment Testing - Occupational testing for employees identified in high - risk positions and work areas. 23

PROFESSIONAL MEDICAL LIABILITY INSURANCE DESCRIPTION OF COVERAGE Professional Medical Liability Insurance (PMLI) is a self-insurance plan that covers all of the UT System staff physicians, dentists, residents, fellows, and medical students who have been enrolled for claims and lawsuits relating to events that occurred while enrolled in the plan. The Office of General Counsel administers the plan and ORM is responsible for plan accounting. DATE OF INCEPTION Statutory authority was granted to the UT Board of Regents on March 10, 1977 and the plan was approved on April 15, 1977. PREMIUM ALLOCATION METHODOLOGY 50% - Institution Weighted Loss History (20 years) 50% - Overall Plan Rate (20 years) Professional Medical Liability Plan Statement of Net Position As of 8/31/2017 8/31/2016 Assets Operating Cash $ (26,956.98) $ (3,896,472.53) Investments 53,149,592.90 57,301,341.88 Total Assets 53,122,635.92 53,404,869.35 Liabilities Accrued Expenses $ 9,309.57 $ 348,192.07 IBNR 20,376,564.00 18,000,030.00 Total Liabilities 20,385,873.57 18,348,222.07 Net Position $ 32,736,762.35 $ 35,056,647.28 Statement of Revenues, Expenses and Changes in Net Position For the Year Ended 8/31/2017 8/31/2016 Revenue Premium Income $ $10,175,053.06 $ 9,792,818.09 Interest Income 1,709,081.67 1,762,191.01 Total Revenue 11,884,134.73 11,555,009.10 Less Premium Refund (6,000,000.00) (6,000,000.00) Net Revenue 5,884,134.73 5,555,009.10 Expenses Legal Expenses $ 1,158,640.73 $ 844,042.03 Claim Liability Expenses 2,488,404.53 2,987,147.04 Medical Board Expenses 952,134.50 638,821.96 Administrative Expenses 1 1,322,393.57 1,504,491.00 Other Expenses 47,850.66 47,451.54 Total Expenses 5,969,423.99 6,021,953.57 Change in IBNR 2,376,534.00 1,885,877.00 Net Expenses 8,345,957.99 7,907,830.57 Excess Revenue Over Expenses (2,461,823.26) (2,352,821.47) Investments Market Value Increased 2,641,938.33 165,719.38 Transfer to Special Funds (2,500,000.00) (4,500,000.00) Change in Net Position (2,319,884.93) (6,687,102.09) Beginning Net Position 35,056,647.28 41,743,749.37 Ending Net Position $ 32,736,762.35 $ 35,056,647.28 1 Lapse FY16 budget: OGC $148,867.89 + ORM $14,818.54. 24

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